Better get paid by dividends or salary?

Londina

What's better, get paid by dividends or salary for a director? By salary, no matter if a company is in loss, he can still get paid let's say £500pm...

instead by dividends, all depends by the profit of the year, example if profit 1st year is £280, can the director pay himself £1000?
I don't think so...however there are so many directors that prefer to get paid by dividends and I don't quite see the benefit, if the company is in loss!

Thanks

KernowAccountant

Directors don't receive dividends.

Londina

KernowAccountant said:

Directors don't receive dividends.

if they are the owner and shareholder, yes they do (very common in small companies)

MarieNoelle

If the company is making a loss there wouldn't be any dividends to be paid?

MarieNoelle

Unless of course there are enough reserves from previous profitable years.

Londina

MarieNoelle said:

Unless of course there are enough reserves from previous profitable years.

exactly...or enough money from director's loan, so the director can pay himself back?

otherwise in this situation, a salary is a better solution

KernowAccountant

Londina said:

KernowAccountant said:

Directors don't receive dividends.

if they are the owner and shareholder, yes they do (very common in small companies)

Precisely my point. Shareholders receive dividends; directors do not.

MarieNoelle

If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.

Londina

KernowAccountant said:

Londina said:

KernowAccountant said:

Directors don't receive dividends.

if they are the owner and shareholder, yes they do (very common in small companies)

Precisely my point. Shareholders receive dividends; directors do not.

yeah I know...but in the real world of SME, 90% of the directors are the shareholders (hence the director's loan account?)

MarieNoelle said:

If this is the director's only income a small salary above the LEL is always a good idea for NIC purposes.

Exactly

Neillaw

Paying a dividend means a reduction in Employers Nic payable as profits will be charged at corporation tax rate.
However if you used the empoyers allowance provision of £2k then a higher salary could be used as long as the shareholder/director pays the personal tax element.

MarieNoelle

Agree but watch out for the withdrawal of the Employer's allowance for sole director's companies from next tax year.

Londina

mrme89 said:

The dividend must be declared from any retained earnings.


Dividends from retained earnings is accountancy 101. If you are struggling with this, I really think you are doing your client a disservice by accepting the appointment.

Don't be drastic, I haven't accept any appointment, that's why I'm seeking clarification in case I have to deal with a situation like this in future.

Of course I know that dividends comes from profit/enough reserves, that's why I'm wondering if a salary would be better

Londina

mrme89 said:

By the way, it's good etiquette to let people know if the question is theoretical.

This is not the MIP forum, but members discussion so questions are usually theoretical . Members can be employees in accounts, not all of them are running their own business